Learning Economics...

Our friends Mark and Joanne host a backyard wine tasting each Friday evening for neighbors and friends. It’s not a formal affair... just stop by with a bottle of wine and an appetizer to share.

A backyard evening event in March is  one of the benefits of living in the mild climate of San Diego (although you pay dearly for this privilege in other ways).

The company at their wine tastings is unique and the discussion is generally lively.

At one point during the course of the evening, their son Travis decided to come out to the patio to join us in the conversation. Travis is a junior in high-school.

As the adults tried to engage Travis in polite conversation, the topic turned to where he might be thinking of attending college and what field of study he was leaning toward.

Travis explained to us that college applications weren’t due until the fall but that he had created a "short-list" of possible schools that he was considering.

His possible schools included Tulane in Louisiana, Drexel in Pennsylvania, University of San Francisco, and San Jose State.

When the subject arose as to a possible major, he told the group that he was planning on becoming a CPA like his father.

It was his belief that the accounting field would continue to grow and that job prospects would be good in the future either in public accounting or as a CFO at a private company.

I couldn’t help but be impressed with the maturity of this young man. He wasn’t yet 18 but yet he was certain of his education and career paths.

This event led me to begin thinking about higher education and its purpose.

In my opinion, the pursuit of a four-year undergraduate degree at a college or university only serves three primary purposes:

1. To provide a student with the access to some broad based knowledge while living independently in a somewhat safe and controlled environment (to learn how to learn while being away from their parents watchful eyes).
2. To prepare a student for future employment.
3. To prepare a student for the pursuit of an advanced degree.

I’m certain that there are other aims of a college undergraduate degree program... but those three purposes constitute the majority of reasons why kids venture off to college after high school.

My conversation with Travis also started me thinking about the cost-benefit of a college education if the intention of the student is one of the first two items on the above list.

Travis mentioned that he was applying for admission to four schools: Tulane, Drexel, USF and SJSU.

According to U.S. News and World Report, here is the breakdown of Travis’s choices:
_______________________________________________________________________

School	Type	Enrollment	4-Year Cost*	School Ranking
Tulane	Private	13,359	$244,664	51
Drexel	Private	11,899	$236,360	83
USF	Private	19,719	$235,296	106
SJSU	Public	24,804	$100,272	38 (regionally)

_______________________________________________________________________

Perhaps you can see where I’m heading with this analysis...

Travis is paying a university to teach him the fundamentals of accounting and preparing him to pass the CPA exam (or I should say Travis’s parents are paying).

What exactly is the extra money (just shy of 250% more) actually buying at a private university?

Now a case could rightly be made that if the private schools in the above comparison were exclusive academic giants such as the Ivies, Stanford, University of Chicago, MIT, Duke, UC Berkeley, UCLA, etc., then a case could be made that their pricing is determined by sheer demand... however, while these schools are highly respectable... no one would ever confuse these schools with the likes of Harvard, Princeton or Yale. (I’m truly not trying to pick on Tulane, Drexel and/or USF... there are literally a hundred of similar schools I could of chosen for my example... but these were Travis’s choices).

Now being admitted to a top academic university is a difficult feat. Due to the limited space and high demand, these schools need only to accept the best and brightest so the entire learning experience is elevated by the prevailing competition.    

All things being equal, a graduate with an accounting degree from Stanford will typically be offered a better position and/or a higher starting salary than a graduate with an accounting degree from San Jose State... therefore a strong case can be made that there is indeed a higher return on investment (ROI) when paying a high tuition rate to attend an elite university.

There can also be an argument that smaller private schools have a lower student-to-faculty ratio.

While is it true that upper-level and graduate classes are generally smaller and intimate, evidence shows that introductory and many lower level preparatory classes are taught by graduate assistants and/or in large auditorium style classrooms with as many as 400 students in attendance.

Additionally, many classes taken in the first two years are to fulfill general education requirements and/or preparing the student for classes within their major.

Such was the case for me when I studied electronic engineering in college.

The first two and a half years consisted of entirely of classes in calculus, physics, computer programming, chemistry, material science, statistics, and thermodynamics... as well as English, history, humanities, social and life sciences, and other general education requirements.

It wasn’t until my junior year that I finally actually learned anything about electronics or engineering principles.

The idea of getting what you pay for seems to be completly ignored when considering college.

Inflation among higher education institutions is out- pacing all other sectors of our economy including healthcare.

There will come a day when students and parents will simply say "no" to the economics of college and demand a better return on their investment.

I wish Travis only the best in pursuing his future endeavors. He is intelligent, mature, articulate, and motivated. 

I have no doubt that success will follow him wherever his heart takes him... he is a bright and shining star and I expect great things from him in the years to come...

I just hope he takes a moment to consider real-world economics before making a very costly decision...

Thank you for your support of OptiFuse, where we encourage others to follow their hearts to wherever it may take them...

Loathing Las Vegas...

At 10,000 feet everything on the ground looks small... that is... unless you happen to be flying over Las Vegas...

Nothing is small in Las Vegas.

The hotels are big... the restaurants are big... the shows are big... and the money is big...

If you like living large... Las Vegas is the place to be...

Las Vegas is unlike any other place on earth... (although some will argue that places like Macao and Dubai are now offering Las Vegas competition... but they’d be wrong).

Vegas is one of a kind... and I suppose that’s a good thing...

The city is the epitome of opulence, faux-glamour, and over-indulgence... a place where nothing is taboo or out of place...

Sodom and Gomorrah might be the original sin cities... but Las Vegas has taken sin to a new level...

Now don’t get me wrong... I’m generally not opposed to sin and I take great care in not judging others...

I say "to each their own" when it comes to individual and/or team vices...

I have a difficult enough time living my own life... how can I possibly live someone else’s life?

I offer no destain for the tens of millions of visitors who come to Las Vegas each year... they come for the shows... they come for the sights... they come for the golf... they come for the shopping... they come to take a chance and to test their luck... they come to be pampered... they come to look and to be seen.

I do not bear any ill-will toward the owners and operators of establishments catering to the demands of the hordes coming to Las Vegas and who willingly part with their hard-earned money... there is no shame in providing legal services to those willing to pay for them... I am a true believer in "free-market" economics.

(Important side note to the readers: When I refer to "Las Vegas"... I am specifically referring to the areas in close proximity to the "strip" and downtown where 95% of the visitors and partiers congregate and major casinos and hotels operate... I am not referring to the quiet suburbs and/or residential neighborhoods where most of the full-time residents live, go to school, raise their families, earn a living and live quiet mostly uneventful lives... it’s an important distinction.)

So why is it that I seemingly loathe Las Vegas?

Well... I suppose there are several reasons actually...

The Destination

I suppose the first and foremost reason that I dislike Las Vegas is that I don’t particularly want to be there... however, each year, several key industry trade-shows are held in Las Vegas. This forces me to choose: Forego participating in the trade show... or travel to Las Vegas for several days... damned if you don’t... damned if you do... 
 
I completely understand the trade show organizers’ reasons for coming to Las Vegas...

It’s an easy place to get to for most people... the city is well-suited logistically for large conventions... the weather is nice (especially in the winter)... and it’s a fun place for people to come and mix pleasure with business...

I get it... I just don’t like it...

Smoke and Mirrors

The second reason I really don’t like being is Las Vegas is that I don’t necessarily enjoy second-hand smoke.

Perhaps I’m just spoiled living in California where smoking (at least tobacco smoking) in public is highly frowned upon and highly regulated.

I’m absolutely not against the rights of smokers to smoke... it’s their life... I just don’t wish to be alongside them... it’s just a personal choice I make for myself... but it seems nearly an impossible task to not end up smelling like an ashtray at the end of the day while in Las Vegas.

Follow The Money

Money is the reason Las Vegas exists... period.

Once upon a time, a long time ago... travel to Las Vegas was relatively inexpensive and highly subsidized by the casinos. Casinos wanted gamblers to come and play their games of chance and offered them low-cost rooms and meals for that privilege of taking their money in their casinos.

Then came along Steve Wynn, who turned the Las Vegas business model upside-down... he realized that Las Vegas was now a destination and that hotels were simply giving away their profits with low-cost rooms, meals and shows (drinks however are still "free" to players).

Hotel rooms, dining, entertainment, night clubs, pools, spas, shopping are now considered significant profit centers for the hotels. Gaming is no longer the single focus for Las Vegas (although this is still a huge profit center as well for the properties).

Las Vegas is now a vacation destination for the entire family young and old... rich and poor (actually forget about the poor part... ).

The High Life

Las Vegas offers its visitors many different opportunities for you to separate from your money. If gaming isn’t your thing... then perhaps a shopping experience is more your style... and I’m not talking about chintzy souvenir tee-shirt shops... 
 
There is no place on earth that boasts the shopping experience of Las Vegas... not even in the cosmopolitan meccas of New York, London, Paris, Tokyo, Hong Kong or Dubai is there such a concentrated collection of luxury boutiques and department stores as there are in Las Vegas.

Hotels like Caesar’s, the Bellagio, the Venetian, the Palazzo, the Encore/Wynn and the Mirage now each have their own luxury mall within the confines of their respective properties. At these malls you will find the likes of Tiffany, Dior, Gucci, Fendi, Armani, Prada, Hugo Boss, Chanel and other luxury brands populating the marquees of these shopping centers.
 
In addition to these shopping havens, three additional stand-alone high-end shopping centers are located on the strip providing its patrons access to larger luxury department stores such as Neiman Marcus, Saks, Harrods, and Nordstrom.

A few years ago, I forgot to pack socks and needed to quickly purchase a pair at a men’s store at the hotel where I was staying... the cost for a single pair of sock: $24 (that’s $12 per sock... ouch!)... needless to say... I didn’t find that shopping excursion very enjoyable...

Time to Relax

The people with money also seem to enjoy eating and drinking at fine food establishments created and operated by celebrity chefs (and want-to-be celebrity chefs).

The customers who frequent such restaurants do not seem deterred by the exorbitant prices charged (many times in excess of $100 per person exclusive of drinks).

I suspect that many of the restaurant bills end up being reported on expense accounts so not a great deal of attention is paid to the final tally. It’s just the cost of doing business...

Limited space today prevents me from discussing the traffic, noise, resort fees, unscrupulous cab drivers, and the overall horrific service (unless you spend a lot of time and money playing games of chance)... I’ll leave those topics for another rant another day...

... but here’s the real interesting thing...

... I am absolutely positive that I am in the minority when it comes to Las Vegas... tens of millions of people flock there each year and truly enjoy themselves... and can’t wait to return.

However for me... Las Vegas is like a three-day trip to the dentist... it’s not necessarily enjoyable but something that needs to be done...

What happens in Vegas... should stay in Vegas...

Thank you for your support of OptiFuse, where we always wish you the best of luck... be it in Vegas or anywhere else you happen to be...

Applying Scientific Method...

My friend Steve and I were engaged in a heated argument.

Steve is of the opinion that a business should attempt to create the broadest base of customers in which to draw from.

His reasoning is that by spreading the business over a wide spectrum of clients, the effect of any one individual customer (or small group of customers) has only a minimal effect on the overall business. In this way the business is never beholden to any large client who can use their "largeness" to negotiate better prices and/or terms.

His thought is that there is always another customer to come and take the spot of the customer who might leave so it’s not important to cater to customers individually but rather to customers as a whole.

While this might work in some commodity type businesses, it is my belief that good customers are rather difficult and expensive to acquire and that every effort should be made to find, keep and grow every client.

It’s my theory that it’s important to look at the overall lifetime value of a customer to business and that individual transactions need to be taken as a composite.

The idea is to maximize the potential of each client by meeting their individual needs because it is a much easier task to increase business at a current customer than always be looking to find new customers.    

Steve referred to Southwest Airlines.

Customers at Southwest Airlines are not management’s number one priority... employees are. They believe that if you have outstanding employees, then the employees can help to create and retain customers.

It is their contention that there is no way to satisfy the individual needs of all their customers... so instead, they created a set of rules and never deviate from the rules. Customers who don’t wish to abide by Southwest’s rules choose to fly with another airline.

With this example, Steve clearly believed that he had won this debate...

Not so fast...

I countered Steve by referring to Nordstrom’s.

People don’t shop at Nordstrom’s because they want low prices or because they want the latest new styles. People shop at Nordstrom’s because they want personalized service and they are willing to pay dearly for it.

Customer retention is the key to Nordstrom’s management’s philosophy. They understand the lifetime value of a customer and are willing to go to extraordinary lengths to make sure a customer is satisfied with every purchase (including allowing a customer to return an item... sometime months... and in extreme cases... years... after the initial purchase was made). They want a customer for life.

Our debate continued throughout dinner with no clear victor in the end. We left with each of us believing that we had the right answer.

As I was driving home that evening, I began to think about the events of the evening.

The two of us each had our own theory of what contributed most to business success... back by several anecdotal examples... but had either of us really proven our point beyond doubt?

Had either of us used a scientific method to collect actual data or were we just talking from our gut?

Scientific Method

Although the ancient Greeks were great thinkers, they typically employed inductive reasoning to support their ideas rather than scientific method.

Their methodology was to make an observation and then create a theory to support their observation based on logic.

The classic example of inductive logic is: Aristotle is a man (observation)... all men are mortal (observation)... therefore Aristotle is mortal (proven theory).

The idea of modern scientific method didn’t really begin to evolve until 1000 AD and the great Arab Empire.

It was the Arab physicist, Ibn al-Haytham, who first began to use scientific skepticism (experimental repeatability) and empiricism (the use of experimental evidence to prove or disprove a theory) as an integral part of his work in optics and light.

During the European Renaissance of the 16th and 17th centuries, several well-known scientists, philosophers, and thinkers (such as Francis Bacon, Descartes, Kepler, Galileo and Newton), refined al-Haytham’s basic ideas into today’s modern scientific method.

The scientific method is presented as prescribed fixed sequence of 5 steps:

Formulation of a question:  Why does something happen? What causes that to happen? What happens if a variable is changed? These are all examples of fundamental questions to begin an investigation.

Hypothesis:  A hypothesis is a conjecture or opinion to answer the fundamental question.

Prediction: This step involves determining the criteria for a tested outcome. It defines the variables and the possible outcomes to support or contradict the hypothesis. It also helps to establish alternative possibilities to support the same hypothesis.

Empirical Testing: The testing step is the gathering of raw experimental data. The collected data is based on real world observations made by independent sources. This data will either support or reject the hypothesis. The more data points collected, the better the results.

Analysis: The final stage is to determine if the results of the testing actually support the hypothesis or not. The results also must be repeatable by different independent testers. That is... my results... should be exactly the same results of others.

It is interesting to note that it only takes one false result to completely invalidate the entire hypothesis.

Also, just because testing supports a hypothesis today, it still doesn’t mean that the hypothesis is conclusive and will be accurate in the future.

From several millenniums, ancient astronomers constructed elaborate models to very accurately predict the movement of the planets and stars based on the notion that the heavens revolved around the earth. These models used scientific methods, were repeatable, and were completely... wrong!

Which brings me back to my dinner conversation with Steve.

Neither Steve nor myself used any real facts, based on scientific method, to support our hypothesis.  We both simply stated an untested opinion.

And throughout time, people have espoused a variety of "opinions" (also known as hypotheses) that they have proposed as "fact" without any real scientific testing.

Many of these ideas are impossible to prove or disprove even with some semblance of scientific methodology (think theology or most social sciences where a "bell-shaped curve" exists).

Although debates over dinner regarding the attributes of business success are perhaps thought provoking and entertaining... don’t forget that wars, resulting in the great loss of life and property, have been waged in the name of unproven theories (think "weapons of mass destruction").

It’s important that we consider only tested facts before making our own decisions.

We need to think twice about delegating our decision making to the so-called experts in the media.

Making good informed decisions based on fact is hard work... but in the end... the better results are worth the effort. 

Thank you for your support of OptiFuse, where we hope that after reviewing all the facts, you decided to choose OptiFuse for your circuit protection needs...

The Traveling Salesman...

There was a time in my life, not that long ago, when I played the proverbial "traveling salesman". Each year I would log some 150K miles a year, traipsing from one area of the globe to another visiting customers and suppliers.

While I truly enjoyed getting out of the office and meeting people from all walks of life... life on the road is anything but glamorous or adventuresome.

I often relate business travel to exercising... in that I absolutely hate exercising (present tense)... but I like to have exercised (past tense).

This past week, due to circumstances beyond my control, I was forced to once again board a plane and hit the almighty road.

The week of business travel, however, did provide me with some valuable insights, random musings and perhaps pearls of wisdom that I’d like to share with you this week...
 
Nice People

My travels this week took me to America’s "Rust Belt"... places like Illinois, Indiana, Wisconsin, Ohio and Michigan... places that once thrived with industrial manufacturing activity but for the last few decades have seen a large decline in these principal activities.

Many people in these areas have been hit with extreme economic hardship... but from their attitude... you’d never know it.

One of the first things a stranger notices is just how damn nice everyone seems to be... (I know that I’ve mentioned it before... but it’s worth repeating).

People who go out of their way to open doors... who are quick to give you directions... who allow you to safely merge into their traffic lane without honking their horns... the restaurant servers who deliver food with a giant smile and such enthusiasm that you thought that they might actually be paid on commission... 
 
I have met some incredibly nice individuals all over the world... but as a whole... I can’t remember when an entire area of the country was so polite, courteous, friendly, and helpful... (or maybe I just spend too much time in Las Vegas, New York, and LA).

Perhaps someone forgot to inform these people that their economy was in the tank and that their lives were supposed to be miserable...

Bad News Sells

Typically, traveling consists of a lot of hurrying... followed by a lot of waiting...

This "stop and start" scheduling causes me to periodically pick up a discarded news paper while biding my time waiting at the airport.

As it so happens, I picked the front page of a metropolitan newspaper and began reading it while waiting for my flight. One of the first things I noticed was that "news" is reporting only when bad things happen.

Rarely (if ever) do you read about 5,000 flights arriving and departing safely and on-time each day at Chicago O’Hare airport... but when a winter storm causes the airlines to delay and/or cancel several flights... it’s front page news. 

I took a moment and noted all of the "negative words" I read in only one section of the local Chicago newspaper...
 
Here is a brief list: crisis, fiscal cliff, disaster, murder, calamity, emergency, bankruptcy, killings, economic collapse, peril, disgrace, fighting, suicide-bombing, stranded, despot, financial ruin, perjury, dictator, cheating, scandal, imminent danger, scams, security-risk, and illegal activity.

I have no idea how someone can continue to read a newspaper and not become thoroughly depressed and/or jaded about our society.
 
For the most part, I’ve eliminated reading the front page news and limit myself to the sports scores and daily crossword puzzles... I feel better not knowing what the next artificial crisis is or how I should feel about it...
 
Back to the Drawing Board
 
I have an incredible job (for a lot of reasons really).
 
As a part of my travels this week, I had the opportunity to visit with several current and potential customers.
 
One of the most interesting aspects of what I do is that I get to help engineers and designers work on the phenomenal new products of tomorrow... today.
 
There are some unbelievably smart individuals who are creating new concepts and designs. Products that could one day change the world...
 
I’m not at liberty to divulge any of the secret information I learned this week... but I will go on record to say that if my experiences this week are typical of what is happening around America and the world, then we are all in for a very bright and exciting future ahead of us...
 
The Good News
 
I’m near positive that some business sectors are still experiencing hardships. Industries like new home construction and certain manufacturing segments are a mere fraction of what they were in their glory days of old.
 
However with that said, I was pleasantly pleased to learn so many small, medium and large companies are experiencing a surge of strong sales of late. Especially in some of the places hardest hit by the Great Recession of 2008...
 
The hotels I stayed at were filled close to capacity and the flights were full of business people who are busily visiting clients and making deals.
 
All of the 15 or so companies that I visited this week in the so-called Rust Belt were abuzz with activity. Many of them reported that sales were very strong and continually improving (I believe this to be true due to the fact that they are continuing to purchase more products from OptiFuse than last year... ).
 
Many firms have begun hiring more people to help them with their workload. This in turn should help the battered economies of these communities recover some of what they lost.

You’ll never hear about these wins... (once again... good news doesn’t sell... either in Washington, on CNN or FOX, or on the newsstand).
 
I’m thoroughly excited about my week out visiting with customers and I can’t wait to see the impact of some of the new products in the marketplace...
 
The people, businesses, and communities of the Midwest are the heart of soul of America. It’s great to watch them succeed...
 
It couldn’t happen to a nicer group of people...
 
Thank you for your support of OptiFuse, where we believe that nice guys don’t necessarily finish last...

The Entrepreneurial Spirit...

"It’s only work if you’d rather be doing something else"   ~ Various Authors
           

So you want to be a farmer

Imagine yourself as a pioneer heading west some 150 years ago in your covered wagon leaving family and friends behind.

After an arduous and dangerous journey, you and your family reach your destination.

You homestead an 80-acre parcel of land and begin a life of farming.

All of your worldly possessions are found in your small wagon.

You use your all of your family’s savings to purchase some farm equipment and starter seed.

You only have a small amount of provisions, so you’ll need to forage for food, build a basic shelter, and try to improvise with what you can find to make up for what you don’t have.

A lot of hard, back-breaking work will need to be completed before the first seed is sowed. The land will need to be cleared and plowed, and hoed.

Then and only then can the seeds be planted into the ground.

Once the crops have been planted, the young seedlings must be properly cared for. The fields need to be weeded, watered and fertilized.

After the growing season is over, the crops must be harvested and the bounty properly preserved and stored to help sustain the family over the winter months to come.

Many days, weeks, months, and years of extremely hard labor is required before any potential is paid to the farmer.

In the mean-time, a list of potentially devastating events could occur. Events such as floods, droughts, locust, and diseases could erase any and all of the farmer’s hard work and efforts forcing the farmer to start again from scratch.

Farming wasn’t fun... it was work...

Farming wasn’t typically thought of as vehicle to riches... but a lifestyle of freedom, autonomy, and self-determination. 

Farming was a way to create something from nothing... from a small seed to the nurishment of a nation...

It took a strong person, both mentally and physically to become a farmer but millions of people did it and many are still doing it today...

So you want to be an entrepreneur

Today the small pioneer farm has essentially been eradicated and replaced with agri-business, computerization and mechanized modern farm equipment.
 
However the pioneer spirit is still alive and well, here in the U.S. and throughout the world in the form of the modern entrepreneur.

Today there are over 23 million small businesses that account for 54% of all sales in the U.S. They provide 55% of all the jobs. While the average small business generates $1.3M in annual sales, the majority of the businesses never generate more than $100K per year in annual sales.

Nearly 3 in 4 small businesses have no employees, relying solely on the work of the owner to produce an income.

Although starting a business can be fairly easy, creating a company that has sustainable revenues can be a daunting task for most small business owners.

Like the pioneer farmer, the wannabe entrepreneur is required to devote a huge amount of up-front time and effort far in advance of any future sales and/or profits being realized. There’s a lot of work and no immediate rewards.

During the start-up period, the entrepreneur must find a way to pay their living expenses. If the business idea is unique and plausible, an entrepreneur might be able to raise capital from investors; however most start-ups are typically self-funded through the owner’s savings or loans.

During this start-up time, the entrepreneur might take on small and/or low margin customers in order to pay expenses (like the farmer planting root vegetables). Although it creates some cash-flow, this model is typically not sustainable over long periods.

Over time, larger customers and/or higher profit work is needed to continue (accomplished by creating a higher valued product or service). It’ll take more time and effort to identify and develop these clients, but like the farmer’s orchard, these clients can help to sustain the business for many years into the future.

Being a farmer or becoming an entrepreneur is a never-ending job. Something will always need to be done. It also takes determination and a strong will as there will be many pitfalls and setbacks along the way.

Becoming an entrepreneur today is much like becoming a farmer 150 years ago. It takes lots of hard work, determination, and perseverance (especially when the going gets tough)...
 
... but the rewards along the way can also be great.

Like the farmer, an entrepreneur creates and produces something tangible...

They have the autonomy to think for themselves and the freedom to do things their way...

They create and develop new ideas that can change the world and make it a better place in which to live...

They make a meaningful difference in their community...

They create value and assets that can be passed down from generation to generation or sold at some time in the future...

Entrepreneurs are the pioneers of today... creating something from nothing through creative ideas... hard work... and sheer determination...

Thank you for your support of OptiFuse, where we applaud and support small business around the world...